A Cloud Camera Company Safie Goes Public After An Eight-Fold Increase In Valuation In Two Years
Table of Contents
Founding Members with Strong Tech Background
High-Quality Recording in Real Time, Anytime, Anywhere
A Variety of Applications Leading to the NRR 138%
From SaaS to PaaS to VDaaS
On September 29, 2021, Safie, a security camera and cloud video service provider, was listed on Mothers (Tokyo Stock Exchange). The opening price was 3,350 yen, 38% higher than the initial public offering price of 2,430 yen, and the company made an impressive debut with a market capitalization of 164.6 billion yen (~1.6 billion USD).
While security cameras may already seem like a mature market, in this article, we would like to take a look at the business plan and growth potential of the company to understand what kind of business it is developing and what kind of growth strategy it has in mind.
Founding Members with Strong Tech Background
The company was established in 2014 and its founder is Ryuhei Sadoshima, who was ranked number one in Forbes Japan's "Japan Entrepreneur Ranking 2021." He started his first business while in college. After graduating, he worked at Sony Network Communications before founding Safie.
Looking at the founding members, you can see many of them are from Sony, which indicates the strong tech background among the founding members. In addition, as of the end of July, the company had 193 employees, about a quarter of whom were engineers.
The company has raised a total of 3.3 billion yen (~33 million USD) from Sony Network Communications, Canon, NEC, and others for the purpose of capital and business alliances. Its most recent round was a Series B in October 2019, at which time the company was valued at 20.7 billion yen (~207 million USD), so its valuation has increased about eight-fold over the past two years.
High-Quality Recording in Real Time, Anytime, Anywhere
With the vision of "creating the future through video", the company provides a cloud recording video platform called "Safie".
Its main product is a cloud recording service called "Safie Pro". It allows users to store and view video data captured by cameras in the cloud. The company offers a wide range of other products such as the "Safie Go" series of outdoor cameras and the "Safie Pocket" series of compact wearable cameras. The company also offers "Safie Entrance" for access control by face recognition, and "Safie Visitors" for analyzing visitors to retail stores.
Compared to conventional surveillance cameras, Safie is characterized by its high image quality and the ability to share images. Conventional surveillance cameras have issues such as poor image quality and the fact that the images can only be viewed on a monitor at the site. This product, however, can record high-quality images, and the images can be viewed in real time, anytime, anywhere.
Another feature of this product is that it can record in a secure environment by encrypting communication and can be installed at a lower cost than conventional surveillance cameras.
The cameras are available not only under the company's own brand, but also under the brands of other companies. There are more than 1,000 types of cameras available.
Safie is now being used in a wide range of industries; retail/restaurant industry (Fast Retailing (UNIQLO, GU) and Bic Camera), construction/real estate industry (Kajima Corporation, Mitsui Fudosan), and infrastructure industry (Kansai Electric Power Co).
Use cases are not limited to crime prevention. For example, at Yakiniku Like, the system is being used to improve customer service operations. The quality of customer service is improved by analyzing the video images of the staff serving customers.
In addition, retailers can analyze video footage of their stores to understand customer purchasing trends and attributes, and how busy and crowded it is in front of the cash register.
A Variety of Applications Leading to the NRR 138%
The company's business model is comprised of two revenue streams; spot revenue from the installation of cameras and recurring revenue from the use of cloud services. The company sells cameras at a low price and recoups the cost through long-term use of the cloud service.
Sales in the previous fiscal year were 5.05 billion yen (~50.5 million USD), more than 2.5 times that of the previous year, and the top line is expanding rapidly. In addition, sales for the current fiscal Quarter (2Q) have been strong at 3.81 billion yen (~38.1 million USD).
As of the end of June, ARR was 4.55 billion yen (~45.5 million USD) and the number of cameras installed was 129,000 units.
The NRR (direct sales only) is high at 138%, and up-selling from existing customers seems to be going well. The company offers a number of applications, which makes it easy to upsell after selling a camera.
The monthly churn rate (Customer Churn) is low at 0.9% for direct sales, but slightly higher at 2.9% for customers through partners (including OEM). As can be seen from its shareholders, who are also their strategic partners, the company has been aggressively pursuing a partnership strategy. As a result, as of the end of last year, the percentage of sales via partners was 60%. Going forward, the key to success in increasing ARR will be lowering the churn rate for customers acquired through partners.
Although the top line is growing, the gross margin is 35%, which is quite low for a SaaS company (the median is 71%). Part of the reason for this low gross margin is because they are selling hardware, i.e., cameras, as a way to sell subscriptions. Improving gross margin will be another key to success going forward.
As for the forecast for this fiscal year, ARR is 5.65 billion yen (~56.5 million USD) (+71.7% YoY), the number of cameras installed is 150,000 (+48.5% YoY), and the gross margin is 39%.
From SaaS to PaaS to VDaaS
Finally, we would like to touch upon the company’s future growth strategy.
The environment surrounding the company is characterized by a declining workforce, promotion of remote work due to COVID-19 pandemic, and the need for DX using video. By using the company's video platform, its customers can efficiently utilize data at low cost.
The company sees room for future growth with 28.63 million network cameras in Japan and approximately 400 million globally. Since the current number of cameras in operation is 129,000, the domestic share is 0.5% and the global share is 0.03%, so there is still a large room for expansion.
In order to achieve growth in the future, the company states that in the short term, it will focus on increasing sales of conventional products and acquiring new customers through partnerships. In the medium to long term, the company aims to expand the sales regions, penetrate enterprise market further, and establish itself as a leading company for video platform.
Specifically, the company plans to promote the use of its products among existing customers by enhancing its sales and support operations, and at the same time, expand its sales channels to individuals. In addition, the company plans to expand its sales regions through alliances with partners, and to expand its applications to other industries.
The company is also launching its app marketplaces, a trend that has been seen in recent years, and is considering offering its own and other companies' applications on the Safie marketplaces from 2023.
Ultimately, the company envisions building an IoT ecosystem that collects data from all kinds of workplaces, including restaurants, commercial facilities, construction sites, parking lots, golf courses, and tutoring schools, and provides solutions that make use of that data.
By utilizing all kinds of image data, the use cases will expand to include parking fee settlement for parking lots, golf swing correction for golf courses, video distribution for tutoring schools, etc. The company is expected to shift from SaaS to PaaS (Platform as a Service) and to VDaaS (Video & Data as a Service).
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Written by kakeru miyoshi(@saas_penguin)and translated by Masato Morishima (@MasatoMorishima)